Mike Cote's Business Editor's Notebook: Dipping into retirement

This year, I will hit the half-century mark, joining the tail end of the baby boomers now eligible for membership in AARP. Excuse me while I bask in the endless array of insurance offers, department store discounts and cut-rate hotel rooms my advanced age affords me.

Fifty doesn't sound bad to me - yeah, yeah, I know it'll soon be time for my colonoscopy - but I do find myself spending more time worrying about the questions that keep every gray-haired working person awake at night.

Will I have enough money saved for my retirement? Will I be able to afford that condo in Sarasota?

These are questions many Americans would rather shirk as they recover from the wreckage of the economic bust of the past four years and draw on their retirement money to make ends meet or pay for lifestyles they really can't afford.

More than one in four American workers who have a 401(k) or other retirement savings accounts use them to pay current expenses, the Washington Post reported this week, citing newly released data from HelloWallet. A quarter of the $293 billion workers and employers contribute to those accounts each year is used for other purposes, such as paying mortgages and credit card debt.

Granite Staters may be in better shape than many of their counterparts. New Hampshire residents who participated in an online survey said they had saved 2.83 times their annual income for retirement, ranking sixth in the nation, according to the State of Savings report released last week by INGCompareme.com. New Hampshire residents reported they have saved 40 percent of what they estimate they will need for retirement.

The state-by-state comparisons were created from responses of approximately 60,000 users of the website who answered questions about their retirement savings, household income, anticipated retirement needs and state of residence.

The study suggests we care about such bragging rights. More than half of respondents said they would be motivated to save more for retirement if their savings didn't measure up to that of their peers. And more than one-quarter said the size of their retirement account was an important attribute for comparing themselves to others, more than material possessions (17 percent) or salary (16 percent).

Perhaps being bested by your peers will compel workers to do a better job saving for retirement and to leave that 401(k) alone.

"The discovery of this phenomenon where folks are starting to dip into retirement savings to live on is going to exacerbate problems for them," says Mark Gagnon, a certified financial planner with Granite State Retirement Planning in Bedford.

Gagnon and his partner, Dan Hagler, work primarily with clients who are about to retire or people who are already retired. Of the clients still working, very few, if any, are touching their retirement accounts, Gagnon said. Some of the firm's younger clients have leveraged their 401(k)s, not necessarily to pay bills but to help make their first home purchase, he said.

Workers who draw from their funds now will face being bumped into a higher tax bracket in the near term, and they'll have to work longer before they can retire, said Gagnon, who sees the phenomenon more prevalent among workers under 40 who use their 401(k)s as an emergency fund for car repairs and other needs.

"That's not what it was intended for," Gagnon says. "That's the collected mentality of what's happening right now. Twenty years ago, it was taboo to touch retirement. The average investor knew that. Today, they don't think twice about it."

While some workers have drawn on their retirement funds to buy pay for vacations or other luxuries, Gagnon acknowledges that layoffs also have been a factor. "Unemployment has forced people to take extreme measures to keep up with their base spending needs for the necessities of life."

What he considers the greatest threat to the financial health of future retirees is their ignorance about money and saving.

"We're in an age where financial illiteracy is running rampant. Besides the economic collapse that is going on around the world, such as in Europe and Japan, that's one of the biggest risks to our economic future," says Gagnon, who bemoans the lack of financial education in the school system. "Our role for our clients is to give them that knowledge, to help them facilitate decisions about their finances."

Even some of Gagnon's more senior clients have been humbled by a financial planning session. He tells the story of a 62-year-old banking executive who contacted him after planning to retire in a few months. After examining his assets and retirement expenses, Gagnon recommended he keep working.

"He never had an estate plan, never had anyone review his income taxes," Gagnon says. "The day he came in, he had a rude awakening that he should work another couple of years because he was not all set. He had a lot of money saved, but he had a lot of anticipated expenses in his retirement."

Such as, perhaps, a condo in Sarasota.

Mike Cote is business editor at the Union Leader. Contact him at 668-4321, ext. 324 or mcote@unionleader.com.